How to Make Money in Stocks [Investing in the Stock Market]

The stock market can be intimidating for many people who want to become successful investors.

It’s easy to get lost in the numbers, charts, brokerage services, and opinions expressed. Fortunately, it’s not as complicated as it seems.

This article will cover some of the basics to start investing with confidence. We will also discuss how to make money in stocks by investing in the stock market.

How to Begin Stock Market Investing

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The best way to start investing in the stock market is to open a brokerage account with an online broker.

An investment account with a brokerage is an account that you use to buy and sell stocks, mutual funds, and other securities.

What is a Stock?

stock market example

Source: Robinhood

When you invest in a company’s stock, you buy a piece of that company. You become a shareholder, and as the company grows, so does your investment.

This ownership is one of the main reasons stocks are considered such a good investment – they have the potential to provide long-term growth.

You can make two primary types of investments in the stock market: buying and holding or short-term trading like swing trading and day trading.

When you utilize a buy-and-hold strategy, you invest for the long term. You will purchase stocks at a specific price and then hold onto them until prices rise.

Swing trading involves trading in or out of stocks over a short time horizon like days, weeks or months. Day trading is when you buy and sell stocks within the same day.

These types of investing require more knowledge about the stock market and tend to carry more risk.

How Do I Select a Brokerage Firm?

man looking at computer with investments medium

When considering your preferred manner of stock investing, you need to consider the different types of brokers available. In the past, brokers split into two main types:

  1. Full-service brokers: Brokers which provide a full range of services from assisting with an investment account, planning for retirement, helping with personal finance decisions and even executing your wishes to buy or sell a stock order.
  2. Discount brokers: For many years, investing in the stock market required going through full-service brokers or your bank. Discount brokers didn’t rule the roost as they do now. These brokers allow you to get started by placing your own trades. This meant you held responsibility for knowing your risk tolerance, whether individual stocks represented the best choice for how you want to invest, and whether you wanted to buy and hold for the long term or instead choose to trade for short-term gains.

Today, smartphones have revolutionized how we interact with money, including ways to invest and make money in the stock market.

Some investors want to take an active approach, while others prefer a passive way to invest in individual stocks, ETFs or mutual funds.

Find the best stock trading app and platform for your needs by looking at the following list of brokerage account options.

Related: Best Investments for Roth IRA Accounts [Target High-Growth]

How to Make Money in Stocks [Investing in the Stock Market]

young woman with glasses looking on smartphone

The first step to making money in the stock market is to decide how much money you want to invest in the brokerage account you select.

This may not be easy to determine, but it is essential to be realistic.

It would help if you also thought about how long you plan on investing. Are you looking for the short-term, or do you want to stay invested for the long term?

There are a few different ways to make money in stocks. Dividends and capital gains are the most popular avenues to making money.

Cash dividends are payments companies make to their shareholders. These payments can come in cash or additional shares of the company’s stock.

Capital gains occur when you sell your shares for a higher price than you paid for them. This profit is taxable as income.

These methods can be profitable and help you build wealth, but it is essential to remember that investment risk is always involved.

You shouldn’t put money in that you need to live right now. Most sound financial advice will tell you to make sure you have your basic needs covered, as well as an emergency fund before you start investing.

If you have those things taken care of, it’s time to start investing. Let’s begin first with choosing to start investing with individual stocks.

Related: How to Get Rich Off Stocks [Steps to Invest in the Stock Market]

Start with Individual Stocks

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Many people start investing in the stock market by purchasing individual stocks. This can be a great way to learn about the market and see how stocks work.

It is also an excellent way to make money if you are patient and do your stock research.

When purchasing individual stocks, there are a few things to keep in mind:

Do your research

Ensure that you know what the company does and what its financials look like.

Don’t invest money that you cannot afford to lose.

This is especially important when starting. Past performance doesn’t always indicate future success. Many investors have lost the money they needed to live or pay rent.

Don’t let that be you! Be smart and don’t invest more money than you’re comfortable with.

Diversify your portfolio

Investing in only one or two companies can be risky. Spread your money out among several different stocks.

Be patient

Individual stocks may take time to increase in value, so don’t sell them just because they go down right after purchase. Different market forces affect stock prices.

As long as you do your stock research and analysis before purchasing particular stocks, you’ll be better able to weather the ups and downs of the market with confidence.

Consider Index Funds

investing in stocks on smartphone

If choosing individual stocks is too intimidating for you, consider purchasing an index fund instead.

What is an Index Fund?

An index fund is a type of mutual fund or exchange-traded fund that tracks the performance of a specific stock market index.

This means that the fund’s holdings have weightings according to the composition of the underlying index.

For example, an S&P 500 index fund would invest in stocks that make up the S&P 500. As a result, these funds provide investors with exposure to the entire market at a low cost.

Index funds are also passively managed, meaning that there is little turnover in the portfolio and no individual security selection.

What is a Mutual Fund?

Mutual funds are a collection of stocks, bonds, or other assets that you can buy. In essence, they let you buy small pieces of many companies instead of just one at a time.

A mutual fund is run by an investment company that pools the money from many investors and invests it into various investment vehicles such as stocks or bonds on your behalf.

Mutual funds can be either actively managed or indexed, as described above.

What is an ETF?

An ETF, or Exchange Traded Funds, is a security that tracks an index, a commodity, bonds, or a basket of assets like stocks.

An ETF trades on an exchange just like a stock does and can be bought and sold throughout the day. Many investors use ETFs to build a diversified portfolio without purchasing individual securities.

Many different ETFs are available, including those that track indexes such as the S&P 500 or the Nasdaq 100, commodities such as gold or oil, bonds, and even currencies.

Some ETFs focus on specific sectors of the economy, while others offer broad-based exposure to the entire market.

You can even use an investment app to build a diversified portfolio of exchange-traded funds automatically through in-app financial advice, limiting the frequency with which you touch or attempt to manage your portfolio.

The Last Edge in Investing: Investing for the Long-Term

While day trading might seem exciting, especially if you have a high risk tolerance, consider that many successful investors prefer investing for the long term.

When you invest for the long-term, you give your investments time to grow, which can lead to a higher return on your investment.

Additionally, you don’t have to worry about short-term market fluctuations that can impact your portfolio when you invest for the long term.

For many people, frequent buying and selling lead to too much risk, so they prefer building wealth through long-term investing.

How to Pick Individual Stocks that Outperform

While no one can predict with certainty which individual stocks will outpace the market in a given year, there are some basic principles that you can follow to increase your chances of success.

These include:

  • investing only when the stock price is low relative to its intrinsic value
  • buying small pieces of many companies rather than large stakes in just one or two names
  • avoiding expensive and popular stocks (which tend not to outperform)
  • having realistic expectations about future growth rates
  • sometimes using stop-loss limits on investments.

Remember, no one has a crystal ball. Even the best investors will have some losses in their portfolios from time to time. So, make sure you have an appropriately long investment horizon and stay disciplined with your buying and selling strategies.

By following these simple guidelines, you can give yourself the best chance of earning superior returns from investing in individual stocks.

If you’re still feeling uncertain about getting started on your own, consider working with an investment advisor at a wealth management firm who can sift through market data and help guide you through the process.

Further, you can use investing apps for beginners to automate your purchase of index funds to hold for the long term.

Related: 13 Best Robinhood Alternatives [US & Non-US Trading Apps]

How to Make Money in Stocks

reviewing financial information

If you want to make money with stocks, buy quality stocks that continue to perform and hold them for long periods.

Or, skip this criterion and buy low-cost index funds that compound over many, many years.

The key to making money in the stock market is holding quality investments for many years. You can improve this by having an awareness of common investor mistakes.

Consider using a stock picking service like the Motley Fool to add higher-risk, higher-return companies to your portfolio of index funds.

These individual companies can drive continued engagement with your portfolio, something that’s important to ensure it doesn’t run off the rails in terms of risk tolerance or asset allocation over time.

The Motley Fool stock advisor service provides investment advice that has potential to perform well and has a consistent history of outperformance for over two decades.

You could also use a robo-advisor to create a diversified portfolio and supplement it with individual stocks to improve long-term performance.

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